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Japan’s Infrastructure Competition with China and its Implications for Southeast Asian Businesses

Japanese Prime Minister Abe Shinzo’s late October 2018 visit to China and the 10th Mekong Japan summit that preceded this trip focused renewed spotlight on Japan-China cooperation and competition. Cooperation and competition between East Asia’s two heavyweights also has been a salient topic to those attentive to the Belt and Road Initiative (BRI) because there are numerous ways Japan and Japanese firms can collaborate with as well as challenge China and Chinese multinational corporations (MNCs). Abe’s Partnership for Quality Infrastructure (2015), various public speeches, and the fact participants in Japan’s PQI are supposed to support a “Free and Open Indo-Pacific” have spurred many to focus on the negative aspects of Japan-China competition. The competition, though, is not necessarily bad for members of the Association of Southeast Asian Nations (ASEAN) nor ASEAN companies. Regarding the former, Andre Wheeler, Director of Wheeler Management Consulting, observes, ASEAN countries may be able to extract better project terms from China because of the Japanese alternative. As far as ASEAN companies are concerned, the competition has three prospective benefits beyond the potential for improved connectivity. First, Japanese MNCs, which traditionally are reluctant to transfer technology and include non-Japanese firms in their supply chains, potentially will feel some pressure from Tokyo and host governments (which will expect to see better “Quality” associated with Japan’s PQI) to do so. Second, Japanese firms will have incentives to diversify from manufacturing and resource investing which should give ASEAN businesses new supply, service, and partnering opportunities. Third, Japan will expand both the amounts and types of funding to back its initiatives. This may, to some extent, drive increased foreign direct investment and other economic activities by Japanese firms in ASEAN with attendant benefits for ASEAN companies. Counterintuitively, then, lose-lose for Japan and China may be win-win for ASEAN countries and companies.